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The Government today (October 29) announced a three-month public consultation on the review of legislative proposals on corporate rescue procedure.
A spokesman for the Financial Services and the Treasury Bureau said: "The aim of introducing a corporate rescue procedure is to provide a statutory 'grace period' - a moratorium on legal action - for companies with long-term viability but facing short-term financial difficulty, so that they can restructure their business or debts, or seek capital injection to turn themselves around."
The spokesman said that the recent global financial crisis had highlighted again the need to consider introducing a corporate rescue regime to complement existing methods for a company in financial difficulty to turn around.
As part of the response to the recent global financial crisis, the Government adopted the recommendation made by the Task Force on Economic Challenges in January this year to advance its review of the corporate rescue procedure.
The Financial Services and the Treasury Bureau, in conjunction with the Official Receiver's Office, have critically re-examined the corporate rescue framework proposed in 2001, and the revised proposals with respect to employees' outstanding entitlements put forward by the Government in 2003.
The spokesman said that in the review, the Government had adopted the following principles:
(a) provisional supervision should complement, and not replace, existing restructuring arrangements under the Companies Ordinance (CO) and non-statutory arrangements;
(b) court involvement should be minimised to save costs and time;
(c) employees should generally be no worse off than in the case of insolvent liquidation; and
(d) consideration should be given to allowing greater involvement of creditors in the rescue process.
At present, Hong Kong companies facing financial difficulty may try to come to an arrangement with their creditors by means of non-statutory voluntary workouts or restructuring arrangements under section 166 of the Companies Ordinance. Neither of those methods provides for a moratorium that can bind creditors while an arrangement proposal is being formulated, thereby lack certainty. There have also been complaints that schemes of arrangement are complex and require too much court involvement.
In recent years, the court has shown flexibility in allowing provisional liquidation procedures under section 193 of the CO, where there is a stay of action in place, to be used to facilitate corporate rescue. Nevertheless, the court has made clear that section 193 is not intended for initiating corporate rescue.
The Law Reform Commission (LRC) recommended in 1996 the introduction of a corporate rescue procedure in the form of "provisional supervision".
Bills were previously introduced into the Legislative Council twice in 2000 and 2001 to implement LRC's proposals, but due to the complexity of the legislative proposals and the diverse views among stakeholders, the proposals were not enacted.
The public consultation, therefore, invites views on proposals or options the Government has formulated for adjustments to the following elements in the 2001 Bill:
(a) initiation of provisional supervision;
(b) moratorium;
(c) employees' outstanding entitlements;
(d) provisional supervisor;
(e) insolvent trading;
(f) secured creditors; and
(g) voting at meetings of creditors.
"We expect that the provisional supervision regime will provide an additional tool for helping companies in financial difficulty. We also aim to encourage company directors to seek professional assistance on a more timely basis," the spokesman said.
"We aim to release consultation conclusions in mid-2010 and, if a consensus can be reached, to introduce legislation to the Legislative Council in 2010-11," the spokesman added.
The consultation document can be downloaded from (http://www.fstb.gov.hk/fsb/topical/review_crplp.htm) Members of the public are welcome to submit their comments by mail to Division 4, Financial Services Branch, Financial Services and the Treasury Bureau, 15/F, Queensway Government Offices, 66 Queensway, Hong Kong, or by fax to (852) 2869 4195 or by email to corporate_rescue@fstb.gov.hk on or before January 28, 2010.
Ends/Thursday, October 29, 2009
Issued at HKT 16:47
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